Authors: Dr. Athanasios Pallis and Dr. Theo Notteboom
Marketing is a core function of seaport management, positively impacting cash flow, profits, production levels, market share, and the overall image of a port and the related cluster.
1. Ports and their Customers
Marketing and customer relationship management are among the “beyond the landlord” functions of port authorities that are gaining momentum. The various forms of communication, trade and business development, local community liaison, and customer relationship management are major components of the overall marketing effort. A fact-finding report that surveyed port authorities in Europe revealed that 81% of them lead promotion and marketing activities for the ports under their management. A study of 70 cruise ports in the Mediterranean Sea found that 71.4% of the port authorities are leaders in port marketing.
Marketing is the process of defining, developing, and delivering value to stakeholders depending on distinctive competencies. By adopting a market-driven approach, a port authority provides various marketing solutions for each stakeholder in the port community and beyond. Marketing strategies developed by port authorities deal with networks of stakeholders, the members of which are categorized into three groups:
- Business-related stakeholders (e.g., shipping lines, shippers, terminal operators, logistics and forwarding companies, transport services providers). These are market players affecting (and being affected by) Port Authorities’ strategies to pursue their marketing objectives.
- Societal groups and local communities seeking sustainable port growth in harmony with the territory and its citizens.
- Institutional stakeholders are involved in meaningful interactions with port authorities on matters linked to several policy issues, legislative interventions, and public interests.
Each stakeholder represents a target for marketing activities, whereas groups of the latter (portfolios of marketing actions) head towards specific marketing objectives. A successful marketing strategy focuses on identifying the key business relationships through which a port can deliver value to (internal and external) stakeholders, based on its distinctive competencies. When such marketing actions are not effective, ports are probably unable to cope with an additional demand.
The potential value for stakeholders generated through marketing efforts develops in line with the main functions that a given port authority undertakes, such as landlord, regulator, operator, or community/cluster manager. Following the evaluation of internal strengths, competitors, the business ecosystem, and the social community, the endorsed marketing strategies are associated with a portfolio of actions based on the capabilities of the port authority. Port authorities define value propositions via actions that might relate to one or more marketing processes aiming to:
- Define value (e.g. identifying the needs, positioning the offers).
- Provide value (e.g. products/services development, defining the price, selecting and choosing the distribution channels).
- Communicate value (e.g. sales force messages, promotion, advertizing, PR, media planning).
Port authorities deal with a multitude of public and private stakeholders, frequently dispersed over a wide geographic space, who exercise a multi-directional influence on their action. The borderless nature of modern supply chains and port clusters evolution have their own implications for port marketing strategies:
- It is rarely the case that actors operate or develop alone within the port cluster. Irrespective of size, the bundling of operations and the clustering of activities facing related issues by endorsing a collective action logic is essential, irrespective of the market niche.
- Even though port authorities are physically bounded in their own territorial jurisdiction, they deal with players in distant and multiple locations. They want to influence their behavior and generate business opportunities. This occurs regardless of any physically limited extension of port operations or the intrinsic normative limitations of port authorities.
- The fuzzy geography of the decisional chains of some stakeholders, such as multinational corporations, might interact with port authorities through multiple decisional units based in geographically distant locations. The existence of multi-layered decisional units (i.e., local offices, national branches, regional and global headquarters) complicates marketing interactions, given diverse representatives within the same multinational corporation.
- Marketing has reference to actors with diverse cultural backgrounds as well as economic and institutional environments. Port authorities interact with players having diverse legal natures (e.g., public bodies, public companies, private companies, individual citizens, trade associations), interests (private vs. public), geographic location, and strategic ambitions (local, national, international). Such diversity might generate problems of market adaptation and make the dialogue with stakeholders less fruitful and constructive.
Thus, marketing efforts developed by port authorities are increasingly complex and require the commitment of specialized and highly qualified managers.
2. Marketing Objectives and Actions
- Secure additional investments.
- Enhance additional demand.
- Exploit non-core business opportunities.
- Build solid community liaisons.
- Enhance institutional dialogue.
The first three refer to business-to-business relations. Another objective resides in business-to-community relationships. The fifth refers to the port relations with institutions and their administrators. These marketing objectives are mutually linked, whereas marketing actions are often required to support each other for achieving objectives that, despite appearances, are not stand-alone.
With marketing objectives closely interconnected, the interplays developed between port authorities and major stakeholders might have further implications compared to what their geographic and functional positioning might imply. A port authority may generate cross-fertilization effects that materialize due to the synergies and economies of scope in committing resources and capabilities to marketing actions. At the same time, any given stakeholder might be involved as a co-creator in marketing actions.
The port authority might select from multiple combinations of stakeholders and marketing actions emphasizing the distinguishing features of their value proposition and market image. With port marketing efforts targeting different market segments and combinations of stakeholders, the set of marketing actions to be used is complex. The port authority can potentially select any combination as an objective and then serve it via suitable marketing actions, committing core resources, skills and competencies, and physical and financial resources, as well as time constraints. With marketing objectives inextricably linked and marketing actions often supporting each other, the generation of cross-fertilization effects might be produced due to synergies and economies of scope in committing resources and capabilities to marketing actions.
3. Increasing Customer Loyalty
Despite the best of intentions and efforts when developing relationships, customers may defect to other ports. The main reasons behind this change in port choice are related to inadequate service or often just the impression of being treated with indifference. Retaining or reclaiming customers can be accomplished through a number of complementary strategies.
A. Communication with customers
It is of paramount importance to occasionally survey customers, preferably via direct verbal communication, to discover satisfaction levels about the port and find out how the port service compares to the competition. This form of market research should be approached systematically and regularly to understand changes in customer satisfaction levels. Issues to discuss include the degree of satisfaction with the services provided, perceptions of value for money, port efficiency, feedback on the available information (e.g. web site), potential growth in terms of tonnage through the port as well as changes to their needs and requirements, feedback on customer service, and in general, the day-to-day issues creating operational problems for customers.
To further assist with customer communications, some ports have developed a visitation program for the chief executive, board members, and senior managers to meet and gather information with current and prospective customers locally, nationally, and internationally, with the objective of better understanding customer requirements.
The formation of port user groups is another effective means of communicating with a broad range of customers. These groups tend to be consultative and information-sharing mechanisms to provide feedback and maintain communication between the port and its customers that may include stevedoring companies, tenants, shipping companies, shipping agents, and community groups. Matters discussed at these meetings may range from operational and policy issues, infrastructure developments, strategy, and environmental management.
B. Listening to front-line people
The customer contact people are often the first to hear what bothers customers and are better positioned to identify customer needs and concerns. They are not only physically or virtually close but may have developed a personal bond with the customer. Understanding that front-line employees continually interact with customers and influence customer satisfaction levels should highlight the importance of employing customer-focused staff and providing them with at least fundamental training in marketing.
C. Service failure recovery
The true test of commitment to customer satisfaction is how the port responds when mistakes are made or there is poor customer service. A complaint may arise because the business has not delivered on the promises made in marketing communications. Labor strikes in ports or severe delays due to operational issues are typical events triggering poor customer service. When assessing poor performance, the reality is conditioned by customer perception. Three major types of service failures exist:
- Failures of the core business where there have been inadequate responses to service delivery system errors.
- Poor or no responses to customer needs and requests.
- Unsatisfactory employee behavior such as being abusive, poor attitudes, being discriminatory, and not considering cultural norms.
A recovery from poor service delivery can convert even frustrated customers into loyal customers. Companies should invest in implementing problem-solving, and follow-up on service recovery strategies since both significantly enhance corporate image. However, the opportunity for service recovery is sometimes missed because employees are not empowered or have insufficient training to address the error in a timely and appropriate manner.
D. Identify potential defectors
Observant ports can detect potential defectors early in the process. There are several indicators that a customer might defect:
- Slower returns of customer approval requests.
- Access to upper-level management decreases.
- The flow of customer data slows down.
- Plans for future work become progressively shorter-term.
- One or more of the products or services are discontinued.
- The volume of business (TEUs, cargo tonnage, or passenger number) is gradually reduced.
Effective inter-port competition creates opportunities for customers to defect. In many cases, a triggering event causes a customer to leave, often coinciding with a window of opportunity created in a rival port. When competition levels are low, and no alternative ports are available, the customer becomes captive, making defection very difficult.
In the port industry, port executives should invest in research to understand the real reasons why their customers leave or stay. Price, changing needs and customer service levels are common reasons.
E. Complaint management
Loyal customers tend to be more forgiving. Therefore the port can occasionally make a mistake and still not lose customers. Receiving customer complaints can be considered positively because they provide an opportunity to address the problem, solve it, and retain customers. Essentially a customer who complains indicates to the service business that it wishes to remain a customer and is willing to give it a second chance. Therefore, ports should make it easy to complain. Complaints can be encouraged by providing customer feedback surveys and speaking to customers directly about any concerns they may have. Asking for feedback from the customers is itself a loyalty-generating process.
Furthermore, good complaint management can only be achieved if the service provider uses a formal system to monitor, process, and follow up on customer complaints. This assumes, for instance, a corporate environment in which employees are encouraged to report on customer complaints instead of an environment in which employees are hiding complaints because they fear penalization from senior management.
F. Capitalize on positive communication
A benefit of retaining highly satisfied customers loyal to the business is that they spread positive word-of-mouth communication (WOM). This factor, along with a critical reputation in the port industry, is a key source of information for new clients. Social media and new communication tools have increased reliance on online information seeking, leading to the growing importance of electronic word-of-mouth or eWOM. If many customers are spreading positive word-of-mouth communication, promotion costs to attract new customers are lowered. Customers believe word of mouth communication to be less biased and more credible than traditional marketing communications. However, concerns have been expressed on the reliability of eWOM due to possible manipulation, disinformation by rivals, and the utilization of fake eWOM. Negative eWOM can lead to so-called online firestorms, which can seriously undermine a port reputation.
G. Usage of exit barriers
One way to give the port authority a chance to respond is to make it difficult for the customer to leave. Erecting a simple barrier to departure allows a port manager to determine what is wrong and fix it before the customer leaves. However, trying to lock customers in does not guarantee port loyalty.
A similar outcome may be achieved by using service guarantees and customer service charters to offset the difficulties of service recovery. Although this may represent a potential cost to the port, service guarantees may increase customer loyalty.
Port authorities confronted with a highly competitive market environment might use concession agreements as a way to lock in terminal operators or consortia between terminal operators and shipping lines. The granting of dedicated terminals combined with favorable port dues and strict throughput guarantees can also reduce the risk of defection.
H. Customer differentiation
Customers do not have an equal value to the port business. Ports become increasingly dependent on external coordination and control by actors who extract a large share of the economic rent produced by ports and are often motivated by creating shareholder value. Given the increasingly footloose character of its traffic, it might be inappropriate for a port to try to keep traffic at any cost. If powerful actors in a specific logistics chain exert strong pressure on a port because of economic rents generated elsewhere in the chain, it might be relevant for the port to opt out of this chain.
Due to changes in the competitive environment, current positioning, and desired target markets, customers should be assessed to ensure they match the stated objectives and value proposition. Segmentation analysis can assist in distinguishing between customers and ensuring the port can serve customers efficiently, effectively, and importantly, profitably for mutual value.
Port managers can attribute a risk profile to each of the customers. Certain customers can be very valuable for the port as a whole. Losing them could trigger effects on other customers because of vertical linkages between companies (e.g. a feeder company might stop calling because a mother vessel is changing the port of call) or leader/follower dynamics (e.g. if a leading company leaves a port, some followers in the market might be eager to do the same).
Port managers should determine the lifetime value of the customers and divide them into high, medium, and low lifetime value segments. They should also determine the likelihood that the customer will leave by dividing the customers into three defection classes.
The customers a port should be most concerned about are the four most important boxes, priorities A and B. Those with the highest lifetime value and the highest probability of defecting are the priority A customers. Priority C customers are the low lifetime value or very loyal customers who will never leave. Once the port manager has identified those customers with the highest retention value, the manager can do something as simple as making sure those customers are key accounts.
I. Pricing strategies
A pricing strategy tailored to the individual needs of the customer is a key factor in developing relationships and loyalty. This implies the economic perspective on port pricing should be complemented by elements from marketing and relationship management linked to different requirements of each major segment. Chapter 5.4 elaborates further on port pricing principles and strategies.
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- Further references to be added